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The Single Euro Cash Area

The Single Euro Cash Area

The importance of cash

To give an exact account of the importance of cash is not easy. No one keeps records of its use, and there is no way to count directly the total number or value of cash transactions. Retailers are knowledgeable on the mix of payment instruments, but no studies have been published by their associations. There are, however, a number of broadly accepted studies on which one can rely. These studies show that, since the start of the millennium, the weight of cash in Europe has declined steadily, while the use of cards for face-to-face sales is increasing strongly. Nevertheless, cash remains by far the most popular payment instrument, especially for small amounts.1 According to figures from the European Payments Council (
), cash still accounts for more than 80 per cent of the European Union's (
) estimated 450 billion annual payment transactions (
-16), totalling about € 3.6 trillion in value terms.2

There are, however, still large differences in the reliance on cash between the various
member countries.3 Countries such as Germany, Italy, Spain, Austria and Ireland are still high cash users, whereas the BENELUX and the Nordic countries have become more card-centric. The volume of cash4 in the economy is therefore very much influenced by different attitudes towards technology as well as the efficiency of other payment instruments or just by law. In France, for example, the use of cash has been limited by law, according to which transactions exceeding €3,000 cannot be conducted in cash (but may be conducted with cheques).

Hidden costs of cash

Why is Europe still relying so much on cash in its payment transactions? One of the answers is that most citizens still believe cash is free of charge. That, however, is a misconception. In reality, cash is a very expensive payment instrument to operate from a societal point of view, especially compared with other payments instruments. Cash is expensive because it has higher production costs, costs of storing, distribution and security measures. And there are also other costs for society, such as fraud and tax evasion. Many citizens, however, are unaware of its full end to end costs. The real costs of cash are mainly hidden and imperfectly externalised to actual users. These costs are rarely charged directly. And there are not only 'hidden' costs involved in accepting cash, but also physical costs, which are borne by merchants, e.g. handling costs, transport costs and security costs (criminal use of cash, black economy). In addition, cash is not the safest means of payment, being subject to counterfeiting and robbery.

Banks incur sizeable costs

The annual total cost of operating the cash system has been variously estimated by the
at between 0.4 per cent and 0.6 per cent of the
's GDP,5 or no less than €50bn for the
. Other studies embraced by the European Commission estimate these costs at €45-70bn per year for the
-16 economy. Given the estimated 360 billion annual cash payment transactions, the social costs of cash per transaction could be calculated at €0.14. According to the latest findings in many countries, the social cost of cash varies substantially, clearly depending on the state of development of the retail payment system. In
countries such as Austria, the Netherlands and Belgium, the cost to society (excluding consumers) of cash amounts to 0.47 per cent, 0.48 per cent and 0.58 per cent, respectively, of GDP. In comparison, in the Nordic countries, where card use is higher, cash-related social costs are much lower. The estimate for Sweden is 0.28-0.33 per cent of GDP, Norway comes in at 0.15 and in Finland (the country with the highest number of card payments per capita in the
) the social cost of cash amounts to only 0.12 per cent of GDP. The cost of cash is a significant issue for the banking industry. Banks incur sizeable costs because they are at both ends of the cash cycle.

According to the earlier mentioned
study, Europe's commercial banks account for two-thirds of the societal costs of cash - or €32bn - of which €21bn is from the incoming (recycling) process. For various reasons (cultural, regulatory, commercial), however, banks are unable to pass on the cost of cash to end users. As a consequence, the de facto use of cash by consumers is being cross-subsidised by other bank revenues.

"Cash is king"

Europe is certainly going to move further towards less cash and more electronic payments. Consumers, especially the younger ones, are much more receptive to adopting new payment instruments and technologies. Nevertheless, cash is likely to be a hard habit to break completely and will continue to occupy a prominent place in society as a means of payment, for various reasons. Cash has unique advantages which will ensure that people will continue to hold at least some cash. Cash is anonymous and still cheaper for consumers compared with cards. Withdrawals from automated teller machines (ATMs) are either free or covered by a (low) fixed fee per account. Users therefore have no real incentive to optimise their payment behaviour from a cost point of view. Cash will also continue to dominate in venues with small ticket size or where other forms of payment are not accepted. A large number of merchants still do not accept cards for small payments and/or do not have the facilities to accept cards for cost reasons, eg flower sellers by tube stations. They are not going to accept contactless payments in the foreseeable future.

Greater affection for cash

But the answer is not only cost. In many countries, for historical and other reasons, consumers feel more confident with cash. They have a great affection for cash because it is real, instantaneous and apparently free. Cash is accessible for all and still the only means of payment for the poor, under 16s and those not part of the banking system. There is also the issue of confidence and trust.

Consumers are not always overly confident with new non-cash electronic bank payment services. They still view cash as a more trusted payment method, especially in times of economic trouble. Recently, cash ATM withdrawals shot up as consumers became fearful about their finances and the safety of their banks.

Cost savings via changing the payment behavior

Cash is expensive for banks and therefore means a significant drag on their profits. This is unlikely to change soon. Cost savings, however, could be realised by changing the payment behaviour of consumers and merchants. This could be done via promoting and incentivising the use of more efficient alternative non-cash payment instruments, but at the same time by discouraging the use of cash (making it less convenient, reducing number of ATMs, introducing or increasing ATM fees), but also by making the real costs of payment services (including cash) visible to consumers, as proposed by Professor Leo van Hove.6

According to past studies in Belgium and the Netherlands, the benefits of cash substitutions are not that straightforward. Relating marginal costs of cash transactions to alternative methods of payment shows that the costs of cash transactions generally rise with the value of the transactions. Costs for alternatives, however, tend to increase much more slowly with the transaction value, if at all. As a consequence, cash is generally cost effective for low-value transactions, but inefficient for high-value transactions. The crossover point for cash and debit cards has been calculated at around €12. Though the advent of technology may change this, the general point still holds.

More efficient cash handling process

Another way is by making the cash handling process much more efficient from an operational point of view, thereby reducing the costs of wholesale cash distribution and collection. There seems to be enough room for efficiency improvements on the incoming side of the cash processing cycle. Cost savings could be realised via efficiency gains in the production and issuance of euro bank notes by National Central Banks (NCBs), via the optimisation of the cash handling process and via the introduction of more advanced and innovative security features.

Banks' efforts towards reducing the cost of cash

Banks have already been focusing their efforts towards reducing the cost of cash via better cash handling of the distribution and collection function for cash. According to some studies, better cash handling could bring about a two-to-four per cent improvement in the bank's cost-income ratio. An effective harmonisation of the conditions for distributing and recycling cash throughout the Single Euro Payments Area (
) could further reduce the cost of cash significantly. Optimised cash handling processes throughout the
could be realised by sharing best practices, seeking economies of scale and standardisation. Banks, however, cannot do it alone. With so many players involved in the cash processing cycle - commercial banks, central banks, market participants, retailers and suppliers such as transporters, cash centres, IT vendors, note printers and mints - all have their role to play.

European cash cycle: present state

The banking industry - as an important user of Eurosystem NCB cash services - has already expressed its vision and requirements, as well as best practices, shaping what is to become a Single Euro Cash Area or SECA. Since the launch of the euro in early 2000, this SECA exists for consumers but is not yet a reality for wholesalers (banks, merchants, professional cash handlers and vendors). There is no level playing field across the eurozone in the provision or sourcing of cross-border and domestic wholesale and retail cash services. The current landscape is characterised by the coexistence of multiple national cash distribution infrastructures each organised at a national level and based on different business models. Every country has its own distinct framework for distributing and recycling wholesale cash.

The lack of harmonisation, of a common approach and of best practice creates many inefficiencies across the eurozone. The direct consequence is that euro notes and coins are distributed to banks throughout the eurozone at very different costs. This makes it impossible to render cash services under the same conditions in different countries.

SECA: Establishing a level playing field

The
has further developed its plans for a SECA in dialogue with the Eurosystem, the European Commission and other key players such as cash-in-transit (CIT) companies. A main objective of the SECA is to increase efficiency and transparency in the cash handling cycle. That should lead to a significant reduction in the cost of cash handling and processing and - as a consequence - should reduce costs to society as a whole, while maintaining security in cash payments operations. The final goal of SECA is to create a level playing field for cash service and processes which are recognised by all euro area NCBs, whereby the basic cash functions in the euro area reflect a common level. The agreed SECA framework therefore focuses on developing common rules for wholesale cash services, setting a number of best practices in the area of retail cash, as well as the provision and sourcing of cash services, cash distribution and cash recycling practices.7

Banking requirements

The banking industry has expressed a number of key requirements for the creation of a level playing field for core cash services provided by NCBs. These requirements include, among others, the agreement of a number of principles to give access to NCB cash services across national borders. The banking industry should obtain 'non-discriminating and unfettered' access, irrespective of the location of any given bank and Central Bank within the eurozone. The SECA also requires a Eurosystem NCBs network with sufficient coverage.8 Other requirements are to enable the interchangeability of services9 as regards lodgements and withdrawals of coins and notes, the establishment of an advanced information interface and feedback between NCBs and banks, needed to ensure a swift exchange of detailed information10 and the optimisation of services and NCB operational conditions,11 necessary to guarantee service efficiency.

All these requirements, however, ask for a number of steps to be taken, such as the harmonisation of operational conditions across the eurozone, the development of common standards for cash processing and security at the eurozone level and the dismantling of legal barriers that nowadays prevent effective provision of cross-border cash service.

Third parties' requirements

In order to realise cost savings, a majority of commercial banks throughout Europe have outsourced all - or at least some - steps in their (wholesale) cash-related processing activities to third parties, especially to CIT organisations. The major European CITs are nowadays offering a full range of services,12 such as transport, processing and management of ATM networks. The overall level of automation in cash processing at CIT companies, however, still compares unfavourably with other industries. There are also significant opportunities here for efficient improvements and savings to be achieved. The design and implementation of large-scale industrial cash processing systems, however, do imply large investments which will accelerate the consolidation process in the CIT industry. But there are still substantial differences between countries that have already undergone consolidation (the UK, France) or those which remain fragmented (Germany, Italy).

Best practices for banks and third parties

A common set of concrete banking best practices in the area of distribution and recycling of eurocash in the eurozone has been identified by the
. These best practices include shortening the cash processing chain, developing cash recycling and cash management, optimising ATM performance, outsourcing cash processing, optimising teller operations and CIT services as well as automating coin processing. Best practices are also defined for the outsourcing of cash handling activities to CITs, including the optimisation of CIT companies' services through SLAs, the reduction of float at security carrier depots, the use of 'smart' boxes, and the optimisation of service frequency and overnight servicing of branch ATMs. A dialogue with other third parties such as the vending industry, retailers and independent ATM deployers, has been opened on issues of common interest in other areas to define best practices. These include the fight against euro counterfeiting across the eurozone, cash processing efficiency, standardisation and containing the societal costs of cash.

Central bank models: what to choose?

Since the introduction of the euro, cash handling by NCBs in the
has undergone a fundamental transformation. The Eurosystem has thereby continuously reviewed its responsibilities and role in the cash cycle, reducing their involvement in the physical processing of cash, with cost efficiency considerations becoming the main focus of attention. The organisation of the cash processing chain within the
, however, still differs significantly from country to country.

Central Banks in the various
member states have adopted very different models,13 ranging from a more centralised one, whereby they control the full cash cycle (Germany, Italy, France, Belgium) but concentrate on larger processing units, to the so-called privatised model at the other end of the spectrum (Austria). While none of these models would be superior in all circumstances, a thorough analysis of several factors - including the relative concentration of the banking sector, the geographical spread of the banking network, the availability of private sector alternatives - could be used to determine which model would perform optimally in each country. Time will tell, however, which model will be the most efficient.

Bank of England model

The Bank of England has taken a different approach. They were one of the first to close branches and provide incentives to the commercial banks to process banknotes through the distribution cycle. They introduced the so-called 'Notes Held to Order' scheme, which enables designated banks to hold stocks of notes on behalf of the Bank of England, in their own cash centres, but off balance sheet. This eliminated the need to transport notes regularly between commercial banks and Bank of England cash centres. The main commercial banks in the UK have developed extensive cash handling operations, not only to satisfy their own requirements, but also to offer cash services to other institutions. Some commercial banks have, in turn, operated joint cash centres and outsourced their operations to CIT companies. The latter development has had mixed results, but further consolidation of cash handling continues to interest the banks.

Norwegian model

A more far-reaching plan has been adopted by the Norwegian Central Bank. They have outsourced significant parts of the processing chain, including the destruction of notes. The underlying idea is that banknotes are already processed in private cash centres, where they are checked for authenticity and fitness. When notes are checked again at the Central Bank, this represents a duplication of tasks and thus of costs. A key requirement of the Norges Bank is that authentication and destruction can only be carried out with equipment approved by the Norwegian Central Bank, and only Norges Bank staff can access the programming of the machines.

Steps forward towards a more efficient cash cycle in the euro area

To create a more level playing field (SECA) for wholesale cash distribution, basic functions performed by NCBs should be harmonised. Common services to banks and similar processing arrangements for the handling of coins and notes in every euro country should be provided. Since the start of the discussions on
and SECA, a constructive dialogue has started between the Eurosystem and the
on how to achieve greater harmonisation14 of NCB' operational conditions in the eurozone. In the meantime, a wide-ranging harmonisation process in the cash processing cycle in the
has been initiated by the Eurosystem.

The ECB has agreed on a number of measures aimed at improving cash processing infrastructures via improving efficiency of the cash supply chain; consistent wholesale and retail cash handling standards; more competition among CIT companies and more competition through the use of alternative cash distribution models. As a result, the Eurosystem has come up with its ECB Banknote Recycling Framework (BRF) and with the European System of Central Banks (ESCB) Roadmap for more Convergence of NCB Cash Services.

Banknote recycling framework

In January 2005, the Eurosystem adopted a common Framework on the Recycling of Euro Banknotes. This framework is seen as an important building block in the gradual harmonisation15 of conditions regulating wholesale cash handling. It enables banks and other professional cash handlers to recirculate euro banknotes. The main requirement to reissue these banknotes by ATMs and cash recycling is that they have been checked for fitness and authenticity according to BRF standards by successfully tested machine types (controlled by the NCB). Other objectives of this framework are to assist payment clearing houses (PCHs) in complying with their legal obligations and to provide PCH diligence standards for banknote handling. This new recycling framework16 will reduce the role of the Central Banks, increase the automation of processing, but also increase the workload for the private sector, requiring significant investments.

Roadmap for convergence of NCB cash services

The Roadmap for Convergence of NCB Cash Services of the ESCB was adopted in 2007. The main goal of this roadmap is to establish uniform standards for banknote processing by private cash-handling parties across the euro area. But also to maintain a high quality of bank notes in the event that banknote recycling is performed by private cash handlers. The roadmap, however, is not a 'one size fits all' cash supply system, but aims to create enough flexibility regarding customer requirements, cash infrastructure and transitional periods for implementation. In this roadmap, a number of measures were agreed, such as the implementation of remote access of non-resident banks to NCB cash services (implemented in 2007 in the whole euro area) and the acceptance of coin lodgements from professional clients at all euro area NCBs counters (2007).***(see note below)

White paper: professional cross-border transportation of euro cash

Another important area where cost-efficiency gains could be realised is in the cross-border transport of cash. The current market for cross-border transport by road in the
area remains very limited. It concerns coins mainly, and as far as bank notes are concerned, cross-border transport is limited to a few cross-border regions. Nowadays, there are wide (legal) differences in member states' requirements for CIT companies, with the CIT market currently divided along national lines.

Given the different legal frameworks among euro member states and their specific requirements,17 it is in practice very difficult to transport euro cash between euro area member states on a professional basis. The ECB, the banking sector and the large retail sector have repeatedly called for the launch of an initiative aimed at lifting the obstacles to the professional cross-border transport by road of euro cash in Europe to facilitate the circulation of the euro (eurocash) within the euro area. In May 2009, the European Commission adopted a White Paper on professional cross-border transport of euro cash in the euro area. The purpose of this White Paper is to launch a broad-based consultation process on a number of possible common rules. This would generally allow cross-border cash transport between euro area member states, while in the meantime providing a high level of protection for the staff carrying out cash transport and for the general public.

What options?

This White Paper describes a number of options from full harmonisation of the regulation of CIT transport to across the board mutual recognition or a set of common rules18 for cross-border transport only. There is a clear preference for this latter - or a mixed - option which would involve uniform rules applying only to cross-border transport and national rules for transport within participating states. These common rules would open up the possibility for more efficient cash transport in border regions. Commercial banks would be able to use the cash services of the nearest central bank and/or CIT cash centre, while big retailers, vending machine operators and other professional cash handlers could be serviced across borders. It would also enable CIT companies carrying out transport in border regions to optimise their transport routes and have access to a larger market. These common rules require not only changes to the existing legal framework, however, but also harmonisation of NCB operational conditions.

Potential benefits

Lower cash handling costs are expected to accrue from lower market prices on the other side of the border, increased competition on domestic markets, single contracts to service locations on both sides of the border and integrated cash management throughout countries. A recent report19 estimates the possibility of saving 19 km on average in travel distance. But other factors that are also expected to accrue from increased cross-border transport - such as more efficient contract handling, the possibility of placing large orders at one single CIT company and increased competition among CIT companies - are seen as much more important from a cost point of view.

Standardisation

To achieve the required level of harmonisation and improved efficiency, a set of euro area-wide standards will be required. A number of priority areas have been defined, such as a European definition of unfit euro bank notes and coins. Initiatives in this area have already been taken, such as the 'Eurosystem Cash Recycling Framework' (bank notes) (2004) and the 'EC Recommendations Concerning Authentication of Euro Coins and Handling of Euro Coins unfit for Circulation' (coins) (2005).20 Also common euro-wide standards for euro coins and notes packaging should be defined, which should follow a number of essential requirements.21 A third priority area is the installation of best practice European standards for bank notes stained by protection devices (including bundle types). Also here initiatives have been taken (Working Group on Cash Degradation Systems; ECB plans to issue new generation of euro bank notes by end of the decade; crime prevention initiative Banknote Watch TM; creation EURIPCA). Another area to be given priority is the development of common security requirements for euro cash transport.

Realising a SECA: cooperative action

The objectives of SECA cannot be achieved only by banks. There are many stakeholders involved in the cash processing cycle such as NCBs, retailers, CIT companies, vendors, etc. Each stakeholder should acknowledge their role to reduce the societal cost of cash. Since early 2004, there has been a constructive dialogue between the Eurosystem and the European banking industry (
), about ways to achieve greater harmonisation of the operational conditions of Eurosystem NCBs, focused mainly on the preparation of the Eurosystem Framework on cash recycling. The
has also started a dialogue with third parties in the cash cycle including merchants, public authorities, cash sector suppliers and CIT operators. The topics discussed include initiatives against euro counterfeiting and standardisation matters, including service levels for the supplier sector. These dialogues should now be extended to other areas. Creating a 'virtual' eurozone-wide cash infrastructure will require that the basic functions performed by NCBs need to be interchangeable, but also that the existing national cash processing chain models, which nowadays differ significantly, should be reviewed. A future model should aim to shorten the cash processing chain by reducing whenever possible the number of participants in the processing and distribution chain, as that would allow greater efficiency. Given the costs involved at each step of the chain, the shorter the cash processing chain, the more efficient the process.22

Next steps

entered another stage with the launch of
Direct Debits on 2nd November, 2009. Since 2008,
for Cards has also been introduced, though in this particular area a lot still has to be done. But, if successful, it could become a good alternative for cash transactions. One harmonised payments area for Credit Transfers and Direct Debits within the eurozone cannot, however, be viewed in isolation from the cash part. As another building block of the European financial house, SECA should be looked at as an indispensable element which should contribute to a more efficient cash cycle in the euro area. This process must be supported by all parties involved. The SECA cannot be realised in the short term, but a gradual though decisive convergence of Eurosystem cash services towards a common cash area will contribute to significant societal cost savings. A real SECA will seek the abolition of existing barriers, especially the legal and regulatory ones. It should, however, also aim to remove the non-regulatory barriers for cash repositioning, such as the customers' present preference for cash, customers' unawareness of the cost of cash, the resistance of the public to covering the costs of cash and the anonymity of cash. These latter barriers will not be easy to overcome, however, and will require a determined effort over a long period.

*** Note: The Roadmap for Convergence of NCB Cash Services of the ESCB was created in response to specific proposals developed by the European Payments Council. This note is not part of the original text first published in the Journal of Payments Strategy & Systems, Volume 4, Number 3 (September 2010).

Carlo de Meijeris senior researcher at the Market Infrastructures Department of GTS Royal Bank of Scotland. He received a Masters degree in international economics from the University of Tilburg in 1977. His main areas of focus are the payments, cards and securities/derivatives environment and its development. During his career he has performed various functions in the banking sector in the international financial area, both as a senior economist and as a private investment adviser. He has been member of a large number of national and European committees and working groups preparing the launch of the euro. He has published many papers on various international economic and financial topics.

This article (titled "The Single European Cash Area: Towards a more efficient European cash society") was first published in Journal of Payments Strategy & Systems, Volume 4, Number 3 (September 2010). For further details and to subscribe please visit http://www.henrystewart.com/jpss.aspx or call +44 207 092 3496.

Journal of Payments Strategy & Systems publishes peer-reviewed articles by leading professionals on how to develop a profitable, customer-focused payments strategy. It examines major issues facing the payments industry from a business, risk and operational perspective with no advertising or sales pitches.

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References and notes

(1) A significant proportion of cash payments, however, are transactions below €15 (56 per cent in France) with 30 per cent below €5 (France and UK). But also in value terms, more than half of all purchases by consumers are still being made in cash in the
, and comparable figures are shown in the UK and the US. Cash use: a comparison (in per cent of total value of payments):
56 per cent; UK 56 per cent and US 29 per cent.(2) Cash use in the UK even rose from 54 per cent of total payment transactions to 60 per cent in 2009, induced by the financial crisis. While there are no official estimates of the total number of cash transactions for the US, the figure of more than 353 billion cash transactions across the US for less than US$5 at the POS (=US$1.32 trillion in aggregate revenue) is indicative.(3) Cash use in the
(in per cent of total value of payments): Finland 47 per cent; France 55 per cent; Germany 75 per cent; Netherlands 60 per cent.(4) Other indications of the importance of cash in the
society are ATM cash withdrawals and the volume of cash in circulation. Since the euro was launched, ATM cash withdrawals have grown at an annual rate of 6-7 per cent in the eurozone, compared with 4-5 per cent in the UK. The euro note issues growth also reached 7 per cent per annum. The vast majority of this increase is due to hoarded currency. In the UK, the value of notes in circulation has exceeded £36bn (end 2007), a 45 per cent increase since 1999. Also the value of US dollars in circulation has increased by 40 per cent between 1980 and 2005 from US$160 to US$700 billion.(5) There are, however, significant differences between the
countries in the costs/GDP ratios, depending on the state of development of the retail payment system. In Scandinavia, where card use is high, cash-related social costs related to GDP of around 0.15 per cent are much lower than in the southern European countries such as Greece, Italy and Spain, where these are beyond 0.60 per cent.(6) Professor Leo van Hove, Associate Professor of Economics at the Vrije Universiteit Brussel, has put forward some ideas about its continuing popularity and options for reducing it.(7) This would involve, among others, the defining of a harmonised set of NCB core responsibilities related to coins and banknotes.(8) That network should be large enough to allow operators getting optimal access to cash in terms of distance, time, security risks and population distribution. Nowadays, there is a patchwork of contrasted national networks across the eurozone.(9) These include: value and denominated constraints; packaging standards; frequency of deposits and orders; coin lodgements; time lag from order to implementation; and time lag from delivery to account crediting. For that, procedures and conditions must be adapted to banks' user requirements and harmonised across the eurozone.(10) This information should cover, among others, cash ordering, accounting as well as differences recorded in the course of the handling process and counterfeiting, efficient and direct interfaces, using advanced information technologies, must be installed between NCBs and banks (to enable the efficient operation of services).(11) Such as minimum and maximum debit and credit rules, opening hours and authenticity control policy.(12) Usual functions: ATM management, network service, first-level support for ATMs (including supply of cash to ATMs), counting and settlement of deposits, cash transport, packaging of notes and coins for NCBs, recycling, storage and cash management.(13) Centralised model: NCB continues to carry out pivotal roles in the cash distribution chain at national level, acting (through its branch network) as the primary cash warehouse, distribution point and processor. Regional cash centres for each retail bank process the cash shipments to and from their own branches (France, Italy and Germany). Laissez faire model: In the Netherlands and Belgium, the NCBs, with support from private players run these operations. Notes held to order model: banks are authorised by the NCB to hold wholesale cash off-balance; fitness sort notes off-balance sheet; deposit 'out-sort' and unfit notes to the NCB for same day settlement; withdraw new notes and store off-balance sheet pending issues to the public (Ireland). Joint venture model: a joint venture (JV) company has been established as a shared utility, involving the NCB and the banks as key financial shareholders. This JV deals with all aspects of wholesale cash activity (destruction of unfit, fitness sorting, storage and cash distribution) on a 'lowest operational cost' basis. The JV directs and manages the injection of new cash, the. It does not run its own CIT fleet (Austria).(14) In 2002, a number of NCB cash services in the
member states had already been harmonised, eg free-of-charge services, minimum opening hours and minimum sorting standards.(15) It would lead to: homogeneous quality and features of notes and coins; the removal of legal barriers and harmonisation of NCB conditions; access to carry NCB of the Eurosystem in a cash supply network; harmonised NCB responsibilities and service level of agreement for: debiting or crediting deposits and withdrawals, opening hours, authenticity and quality control; common rules for NCB bank fees and charges and stability of operational conditions of NCB services.(16) Progress has already been reached on a number of issues: NCBs' annual tests with manufacturers of all machine types to verify that new types of counterfeits can reliably be detected; Test Deck updated every two months; NCB on-site inspections at banks/professional cash handlers to audit machine settings and related working procedures; Collection of statistical data from banks/professional cash handlers.(17) Licence rules, CIT staff, possession/carrying firearms by security staff, authorised transport modalities, etc.(18) The common rules proposed by the European Commission include: Apply only to cross-border transport between participating member states; Apply only to euro notes and cash; Require the cross-border round trip to be completed on the same day; Require a company which wants to transport euro cash across national borders to apply for a specific cross-border licence, valid for three years, from the member state in whose area the journey will start; Require the applicant company to comply with common rules about the staff employed for transit; the vehicles to be used; and the circumstances in which staff could carry firearms.(19) These estimates originates from: Ramboll (2010) 'Potential Market for Professional Cross-Border Transport of Euro Cash by Road between Euro-Area Member states. Final Report', Ramboll, Copenhagen, February.(20) SECA standards that have been already delivered are the definition of fit/unfit euro banknotes/euro coins; the harmonisation of euro banknotes' and bank coins' authentication methods; minimum manual fitness sorting standards for euro bank notes and terms of reference for the use of cash recycling machines and cash-in machines.(21) NCB cash services will be interchangeable; number of packaging requirements should be as reduced as possible; packaging standards for unfit coins/ banknotes; coin/banknote standard packages must be suited for different commercial uses; compatibility with cash degradation systems.(22) For instance, the promotion of direct contracts between merchants and CIT companies would allow cash to be delivered directly to cash centers.

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In this article

Since the introduction of the euro, the use of cash as a means of payment in the euro area has been declining. But this trend is being identified in other countries also, such as the US and the UK. Nevertheless, cash continues to represent a huge number of payment transactions. In fact, the total number of euros is increasing. Though consumers still think cash is costless, the problem with cash is its relative inefficiency, reflected by its high (but hidden) social costs. It involves a major cost, especially for banks and merchants. It is thus not surprising that, to reduce these costs, the euro cash cycle is undergoing fundamental changes. Substantial cost savings in processing and handling cash are possible by creating a level playing field in the European Union; a so-called Single Euro Cash Area (SECA). This, however, necessitates reforming the present complex wholesale cash distribution and collection infrastructures within the eurozone. This article by economist Carlo R.W. de Meijer analyses how to realise the SECA, what requirements are posed by the banking sector, and what steps should be taken by all parties involved.

Carlo R.W. de Meijer

Senior researcher at the Market Infrastructures Department of GTS Royal Bank of Scotland